Sunday, July 05, 2015

Answer: because Puerto Rico doesn't have its own banking system. It can't shut down banks. Banks in Puerto Rico are not loaded up on Puerto Rico debt, so depositors are not in danger if the state government defaults.

Puerto Rico, like Greece, uses a common currency. But there is no question of PRexit, that people wake up one morning and their dollar bank accounts are suddenly PR Peso bank accounts. So they have no reason to run and get cash out

There are obvious parallels between the crisis in Puerto Rico and the disaster in Greece — a poor economy overshadowed by a huge wealthier economy to the north, budget problems, declarations that the debt is unpayable. And I don’t want to minimize the problems and pain in San Juan. But it’s important to understand that the depth of the pain is just not of the same order of magnitude, and not just because Puerto Rico’s banks are secured by a national safety net, although that helps. (...)

What’s supporting that consumption? Some of it surely involves private remittances from Puerto Ricans working on the mainland and sending money home. But it’s also fiscal federalism: as Puerto Rico’s economy has stumbled, its payments to Washington have dropped while its receipts from federal social insurance programs have risen, so that the island is in effect receiving aid on a scale that would be inconceivable in Europe.